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Malaysia's Syed Mokhtar Shoots to Top
With Help From Government Contacts

By

Leslie Lopez Staff Reporter of The Wall Street Journal

Updated April 8, 2002 12:01 a.m. ET

KUALA LUMPUR, Malaysia -- Syed Mokhtar Al-Bukhary is the businessman of the moment in Malaysia. Thanks to some active deal making over the past several years, he has gained stakes in an array of important ventures, from the country's biggest port to many of its power plants.

One of Tan Sri Syed Mokhtar's greatest admirers is Malaysian Prime Minister Mahathir Mohamad, who has praised the businessman's think-big style and lavish donations to Islamic causes. "He's at the [prime minister's] office in the morning and at his dinner table at home in the evening," a Malaysian businessman with close ties to Dr. Mahathir says, speaking figuratively.

Indeed, the closeness of Tan Sri Syed Mokhtar's relationship with the prime minister is beginning to worry some Malaysian executives, private economists and foreign fund managers. Tan Sri Syed Mokhtar's portfolio is thick with assets that have been acquired from the government without a public bidding process. Early last year, he completed a deal for 19.9% of
Malaysia Mining Corp.
, a cash-rich former tin-mining company controlled by a state-run investment fund. Tan Sri Syed Mokhtar is now finalizing an agreement for control of almost 40% of the company.

And just last Friday, he inked a deal to buy
Pernas International Holdings
Bhd., a state-run investment concern with interests in manufacturing, hotels and property, for more than one billion ringgit. The deal has yet to be publicly announced, but executives familiar with it confirmed some of the details.

Both the MMC and Pernas deals were struck privately between the government and Tan Sri Syed Mokhtar; both are listed companies.

As one generation of politically connected Malaysian businessmen fades from prominence after overextending itself, Tan Sri Syed Mokhtar is taking their place as the government's partner of choice. But some are suggesting that he could be bound for the same fate. A look at his ascent shows both the strong hand that the government continues to play in business here, and the opaqueness of some of the most high-profile deals.

No one has accused Tan Sri Syed Mokhtar of any wrongdoing. Tan Sri Syed Mokhtar, who rarely speaks to the media, declined requests to be interviewed for this article. The government, for its part, says he is an able and seasoned businessman and that these contracts are in good hands.

Still, the asset sales come as Dr. Mahathir's government has been moving to end its practice of channeling lucrative contracts to chosen businessmen. That intertwining of business and politics has led to some spectacular corporate disasters in Malaysia in recent years and frightened foreign investors. Since July, the 76-year-old Dr. Mahathir has taken over several debt-ridden companies, and replaced their politically connected owner-managers with professionals. Among the targets: Malaysia's largest corporate debtor, Renong Bhd., scandal-plagued Malaysia Airlines System Bhd., and the conglomerate
Malaysian Resources Corp.

The government's decision to purge some once-favored entrepreneurs, including Renong's Halim Saad and Malaysia Airlines' Tajudin Ramli, has already paid off. Foreign-led buying has lifted the benchmark Kuala Lumpur Stock Exchange composite index almost 20% since July, and fund managers have praised the new policy.

"Clearly the perception has changed," says Tan Pye Sen, an analyst at J.P. Morgan Malaysia Sdn. Bhd. "There are increased visits from foreign fund managers and they leave with the impression that the government is making steps in the right direction."

A corporate housecleaning would mark the end of a 15-year economic experiment by Dr. Mahathir and his deputies to breed a class of ethnic Malay entrepreneurs as a counterweight to the disproportionate success of ethnic Chinese and foreigners in the Malaysian economy. In the late 1980s and 1990s, Kuala Lumpur awarded huge infrastructure projects and vital privatization contracts to companies run by these hand-picked businessmen. After the deals were struck -- most were never opened to competitive bidding -- the government encouraged Malaysian banks to provide easy credit to these ethnic Malay business groups.

When the Asian economic crisis exposed the conglomerates as debt-laden and cash-poor, the government stepped in with bailout money. But those rescue efforts only further sullied Malaysia's image among foreign equity investors, who continued to spurn the Kuala Lumpur stock market.

Tan Sri Syed Mokhtar's rise, say some bankers and even government officials, is reminiscent of the old patronage system that Dr. Mahathir ostensibly wants to bury. Critics worry about whether the future of companies like MMC and Pernas is secure in the hands of Tan Sri Syed Mokhtar, a longtime trader with no experience managing businesses. Further, they say, the secretiveness of the sales makes it impossible to know how the deals are being financed.

"The argument that we may be creating another Renong or Halim [Saad] is valid," says one senior government official. "The question is where is the money coming from?"

That's not an easy question to answer. Because Tan Sri Syed Mokhtar's empire has been built on the back of little-known private companies, many of which don't disclose any link to him in public records, it's difficult to track funds coming in and going out. Apart from the Albukhary Foundation, which Tan Sri Syed Mokhtar owns directly and which invests in cultural projects like mosques, he rarely lends his name to businesses he controls. Instead, according to bankers who have dealt with him, he uses nominee shareholders.

Further adding to the mystery, the lanky and pale-complexioned 50-year-old businessman shuns attention. He avoids being photographed by local newspapers, and never discusses his relationship with Dr. Mahathir. Unlike other high-profile ethnic Malay businessmen, whose tastes run to expensively tailored suits, pricey cigars and exotic luxury cars, Tan Sri Syed Mokhtar prefers open-collared shirts and sips tea thick with condensed milk at road-side cafes.

Born to a family of traders with roots in Bokhara, in present-day Uzbekistan, Tan Sri Syed Mokhtar grew up in Dr. Mahathir's home state of Kedah. Close associates recall a twentysomething Tan Sri Syed Mokhtar dabbling in an array of ventures in the early 1970s, including peddling Thai rice to the Kedah state government.

Later that decade, he started networking within Dr. Mahathir's ruling party, the United Malays National Organization, beginning with a promising young politician named Muhyiddin Yassin. Tan Sri Muhyiddin later became chief minister of Johor state, and Tan Sri Syed Mokhtar won land deals and privatization and infrastructure contracts from that government. One of Tan Sri Syed Mokhtar's favored revenue streams was subcontracting those infrastructure contracts for a profit.

But Tan Sri Syed Mokhtar made his real money years later, riding the 1990s stock-market boom in Malaysia. In fact, buying stakes in listed companies and selling them at a premium provided him with the seed capital for his first major venture: the purchase of the port in Johor from the state government. As this project moved forward, Tan Sri Syed Mokhtar would draw heavily on his political connections.

Once he had the port, he persuaded Kuala Lumpur in 1996 to give him the rights to overhaul it, promising that the new version would rival Singapore's port. But a year later, he ran out of money, bringing construction to a halt. He quickly turned to his government contacts for help, in this case, Dr. Mahathir's then-protege, Anwar Ibrahim, who was finance minister for most of the 1990s. The Finance Ministry jumpstarted the port project that same year, directing a state investment company, Khazanah Nasional Bhd., to buy a 40% stake in the venture from Tan Sri Syed Mokhtar. Details of the transaction were never disclosed, but bankers familiar with it say Khazanah paid more than 600 million ringgit ($157.9 million).

By early 2000, the port, called Tanjung Pelepas, was up and running, and Tan Sri Syed Mokhtar was looking for some business partners. He began negotiations with Maersk Sealand International for a 30% interest in the port and the right to manage its operations. The Danish shipper, then based in Singapore, jumped at the offer to turn Tanjung Pelepas into its new Asian transshipment hub.

Before sealing the deal, Tan Sri Syed Mokhtar reacquired the government's 40% stake for an undisclosed price, say bankers familiar with the deal. He then turned around and sold the 30% interest to Maersk for almost 730 million ringgit, a deal that was completed early last year. The bankers say he made a profit of more than 200 million ringgit.

"It would have been more fair if the government made a profit, because it bailed out the project," says the chief executive of a local bank.

Malaysians who have done deals with Tan Sri Syed Mokhtar say that he isn't averse to flaunting his political connections in business negotiations. One property company chief executive recalls how Tan Sri Syed Mokhtar, when told a certain concession he was demanding in a property venture wasn't reasonable, calmly responded that if he didn't get his way, government regulatory approval for the deal might become difficult to obtain. "We eventually gave in to some of his demands because the whole venture would have collapsed," says the executive. The deal ultimately did receive regulatory approval, though it's not clear if Tan Sri Syed Mokhtar had any influence on that decision.

Dr. Mahathir's close aides dismiss concerns that Tan Sri Syed Mokhtar is getting preferential treatment at public expense. They say he has shown himself to be a results-oriented manager. "The PM [prime minister] feels that he can deliver and so far he has done so," says a close aide to Dr. Mahathir who knows Tan Sri Syed Mokhtar well. In particular, the government praises his development of Tanjung Pelepas and his financial contribution to the Islamic Exhibition Center in Kuala Lumpur, a 70-million-ringgit project.

Just last week, Tan Sri Syed Mokhtar signed a deal with Taiwan's largest shipper,
Evergreen Marine Corp.
, that one analyst estimated would shift 90% of Evergreen's business to Johor from Singapore, a coup for Malaysia. The new port has only been in business for about 18 months, and because of the massive upfront capital outlays required with such projects, it's still too early to assess Tanjung Pelepas's financial health.

Tan Sri Syed Mokhtar is also spending big on power generation. His holdings include plants already in operation as well as others under construction. The combined output of those plants would make him Malaysia's largest energy supplier after the giant state-owned utility Tenaga Nasional Bhd.

Indeed, it's the hefty capital requirements of many of Tan Sri Syed Mokhtar's investments that worry the bankers and fund managers. It was the same kind of costly infrastructure projects that helped doom the high-flying Malaysian tycoons of the 1990s.

Tan Sri Syed Mokhtar's minimal disclosure doesn't help ease their minds. A dearth of information makes it hard to know whether his businesses are making money or losing it, how much debt they've taken on, and the inter-relationships among his companies and between his businesses and government-run entities.

Tan Sri Syed Mokhtar's corporate headquarters is located in a small three-story shop lot in a shabby part of Kuala Lumpur. Records at Malaysia's Registrar of Companies show that at least 30 companies, mostly private-investment holding companies, list that building as their registered office, though none name Tan Sri Syed Mokhtar as a shareholder. Many bankers believe that these companies, some of which are dormant, others of which have stakes in sectors like property and information technology, are ultimately controlled by Tan Sri Syed Mokhtar.

Even on nonbusiness matters, Tan Sri Syed Mokhtar zealously guards his privacy. When he was given the prestigious title of "Tan Sri" -- an honorific roughly equivalent to "Sir" -- by Malaysia's king two years ago, he barred his employees and business associates from placing the customary congratulatory notices in local papers.

"We were warned that if any notice appeared, those responsible would be sacked immediately," recalls a senior executive who works for the businessman. "Even our [business] clients were told that they risked losing our business if they took out any advertisements."